Where does one draw the line between personal and business? It’s a timeless question, and was also the subject at issue in Koh v Ellipsiz Communications Ltd., 2016 ONSC 7345 (Koh), decided by the Ontario Superior Court of Justice on November 28, 2016.
The facts of the case are these: Ellipsiz Communications Ltd. (ECL) is a TSX Venture Exchange-listed issuer. ECL’s six-person board includes its two largest shareholders, Tat Lee (Michael) Koh and Chong Gin (Sam) Tan, who control about 42% and 27% of outstanding shares, respectively. Following a dispute between Mr Koh and a majority of the ECL directors (including Mr Tan), Mr Koh submitted to the board a requisition seeking a shareholder meeting at which the shareholders would consider resolutions to remove three directors and elect replacements. The Board declined the requisition, citing its discretion under section 105(3)(c) of the Ontario Business Corporations Act[1]. Mr Koh attempted to call a meeting of his own accord and applied to the court for a declaration that his meeting was validly called, which the trial judge denied.
In his reasons, Superior Court Justice Wilton-Seigel considered how to interpret section 99(5)(b)[2] of the OBCA, which sets out that a board can decline a requisition made for the primary purpose of redressing a personal grievance. However, the OBCA does not specify what evidence may be considered in determining the primary purpose of a requisition. To this end, Justice Wilton-Seigel referenced Michaud c Banque Nationale du Canada[3], wherein the Superior Court of Quebec ruled that only the contents of the resolutions at issue could be considered. The court in Koh ultimately distinguished Michaud, stating that whether or not such an approach is suitable for a shareholder proposal addressing matters of corporate policy, it is not appropriate in the context of a requisition to reconstitute the board of a public company between annual meetings. Justice Wilton-Seigel wrote that while the requisitioning party should not be cross-examined as to motives, reference can be made to prior conduct, behaviour or written communications. He considered also minutes of board meetings and other documentary evidence in determining Mr Koh’s primary purpose.
Koh emphasizes that shareholders considering submitting a requisition should be mindful that their actions and correspondence could be the subject of judicial scrutiny. Two otherwise identical requisitions could be treated differently by the courts depending on the facts that led to their submission.
Mr Koh has announced that he will appeal the Superior Court’s decision. We will continue to monitor this matter and report on any updates.
[1] RSO 1990, c B16 [OBCA].
[2] Section 99(5)(b) allows the board to exercise its discretion to decline a requisition if “it clearly appears that the primary purpose of the proposal is to enforce a personal claim or redress a personal grievance against the corporation or its directors, officers or security holders”.
[3] [1997] RJQ 547 [Michaud]. Michaud was a case about the federal Bank Act, which has a comparable provision to s 99(5)(b) of the OBCA. At the time Michaud was decided, the English and French versions of that provision of the Bank Act (and the Canada Business Corporations Act [CBCA]) were slightly different, with the English focussing on the shareholder’s purpose in bringing the resolution, and the French looking to the purpose of the proposal itself. The court chose to follow the French version, and Parliament subsequently amended the English versions of the Bank Act and the CBCA to match the French version. The Ontario legislature later revised the corresponding provision of the OBCA to match the CBCA.